As I am sure most landlords and investors in Scotland already know December 5th saw a significant change in the property investment landscape. The Additional Dwelling Supplement (ADS)—Scotland’s equivalent of Stamp Duty for second homes—rose from 6% to 8%, marking the second increase in just two years and making it the highest rate across the UK.
While this news may initially seem daunting, there are ways for savvy investors to adapt and thrive in this evolving market.
The Challenges
Increased Transaction Costs
The higher ADS rate adds an extra £3,200 in tax on a £160,000 property purchase, increasing the upfront costs associated with acquiring property. This combined with persistently high mortgage rates underscores the importance for investors to thoroughly evaluate each deal, ensure the numbers work, and explore strategies to mitigate risk wherever possible. Accurate financials are the foundation of success, every property deal is built on numbers. Without a clear understanding of the financial aspects of a deal investors risk overpaying, underestimating rent and costs thus potentially ending up with a poorly performing investment. Seeking the guidance of experienced professionals can mitigate risk and optimise returns. Knowledge and guidance can be one of the greatest assets in property investment.
Fewer Landlords in the Market
The ongoing pressures of rising costs, coupled with recent ongoing regulatory and legislative changes proposed within the new Housing (Scotland) Act, are prompting some landlords to sell up. This trend could further constrain the current supply of rental properties, which in turn, will add upward pressure on rents.
Discourage new landlords
Yet more costs will discourage new landlords to invest into the private rented sector at a time when new homes are desperately needed further exacerbating the housing crisis in Scotland.
The Opportunities
While the challenges are real, so too are the opportunities. Finding deals in today’s property market requires a combination of strategy, persistence, and adaptability. Smart investors know that opportunities always exist—it’s just a matter of knowing where and how to look.
Reduced Competition
As some investors exit the market, those who stay may gain a competitive advantage. This could result in better deals on properties that might previously have sparked bidding wars.
Strategic Portfolio Building
- Bulk Purchases: Buying six or more properties in one transaction can qualify for multiple dwelling relief, thus reducing the ADS burden. This is an excellent way to scale up and reduce risk if an investor has access to enough capital.
- Low value opportunities: Properties under £40,000 remain exempt from ADS, offering creative ways to expand a portfolio while minimising costs.
- Off market opportunities: Look for properties being marketed “off market” often these maybe already tenanted. It will also normally mean that there are no other bidders involved and prices can be keener. But doing correct due diligence on tenanted property is critical.
Glenham often have access to exclusive off market properties and portfolio deal and if anyone is interested in having a conversation about this please do get in touch here.
Look for motivated sellers
Identify properties with owners who may need a quick sale, such as those in probate, divorce, or financial distress.
Focus on Quality Deals
Strong deals can overcome the higher upfront costs. If a property’s long-term returns remain robust, the additional 2% ADS is unlikely to outweigh the benefits. It’s all about doing the math and finding deals where the increased costs don’t erode profitability.
Be Open to “Doer-Uppers”
Properties requiring refurbishment can often be purchased below market value and offer excellent potential for value-add opportunities.
Move Quickly
Speed is crucial in competitive markets. Deals are often won by those who can act the fastest. Be prepared ensure your finances are in place. Whether it’s cash, a bridging loan, or a mortgage, being ready to act gives you a significant edge.
Take A Long-Term Perspective
Property investment is a long-term play while an extra £3,000 upfront may seem significant, it’s a small fraction when spread over decades of ownership. Investors who focus on maximising returns, look at the long term potential ROI, and
Adapting to Thrive: Why Resilience Matters in Property Investment
In times of heightened government intervention and market volatility, it is easy to feel discouraged. However, seasoned investors understand that resilience and adaptability are key to thriving in the property market. Residential property remains an excellent asset class for diversification, offering compelling advantages:
- Attractive, Risk-Adjusted Returns: Property investments historically deliver strong total returns when carefully selected and managed.
- Stable Residual Income: Even amidst economic uncertainty, rental income tends to remain relatively consistent, providing a reliable income stream.
- A Hedge Against Inflation: Property values and rental income typically increase with inflation, helping to preserve purchasing power over time.
- Risk Mitigation: Real estate provides a counterbalance to more volatile asset classes, reducing overall portfolio risk.
Property income, in particular, demonstrates remarkable resilience, often maintaining stability even during periods of extreme economic disruption. By focusing on long-term value, diversifying wisely, and staying invested, you position yourself to weather short-term challenges and emerge stronger in the long run.
If anyone would like to have an informal chat about legislation, the state of the market, opportunities there in and the strategies discussed above please do get in touch.
